AMD suffers in price war
Published: 21 Jul 2006 09:35 BST
As expected, AMD's second-quarter results came in below the company's targets, as it bore the brunt of a price war.
AMD warned investors in June that it would fall short of its revenue targets, so Thursday's announcement of $1.22bn in revenue was no surprise. Analysts polled by Thomson First Call had originally been expecting $1.3bn in revenue, but revenue from desktop processors was lower than expected owing to deep price cuts on Intel's part in the desktop processor market, AMD executives said on a conference call.
Earnings also came in lower than expected. Net income was $89m, or 18 cents a share. The Wall Street crowd was looking for 22 cents a share, and the after-hours traders punished AMD's stock, sending it down 74 cents, or 3.42 percent, in extended trading.
"Right now this challenging environment is the desktop market in the channel," said chief executive Hector Ruiz. Rival Intel has slashed prices on desktop processors ahead of the launch of its Core 2 Duo chip, which will be unveiled next week.
However, AMD still improved its overall revenue by an impressive 53 percent compared with last year's second quarter, not counting the results of AMD's flash memory group last year. Spansion, the flash memory division, separated from the company in December through an initial public offering.
Sales of Opteron server processors continued to lift the company. Shipments grew 26 percent in the second quarter compared with the first, and AMD thinks it picked up some server market share at Intel's expense during the quarter, said chief financial officer Robert Rivet. The company won a very significant customer during the quarter in Dell, which is still on track to ship a four-processor server using AMD's chips by the end of the year, Ruiz said. Also, IBM and AMD are planning to announce an expansion of their relationship on 1 August that could lead to a wider variety of servers, sources said on Thursday.
And despite Intel's price cuts, AMD thinks it might have held on to its share in desktop and mobile PCs, Ruiz said. Still, AMD expects the pricing situation to continue into the third quarter as Intel ramps up the production of its Core 2 Duo chips. AMD has said it plans to cut prices aggressively in July to counter the Core 2 Duo processor, which garnered rave reviews last week.
Looking forward into the third quarter, Ruiz said he expects AMD to perform slightly above seasonal trends. In general, business tends to pick up by about 4 percent to 7 percent from the second quarter to the third, Rivet said.
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